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Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So, the natural question for Universal Health International Group Holding (HKG:2211) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
See our latest analysis for Universal Health International Group Holding
When Might Universal Health International Group Holding Run Out Of Money?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at June 2019, Universal Health International Group Holding had cash of CN¥631m and no debt. In the last year, its cash burn was CN¥313m. Therefore, from June 2019 it had 2.0 years of cash runway. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Universal Health International Group Holding Growing?
Universal Health International Group Holding boosted investment sharply in the last year, with cash burn ramping by 56%. While that's concerning on it's own, the fact that operating revenue was actually down 8.4% over the same period makes us positively tremulous. Taken together, we think these growth metrics are a little worrying. In reality, this article only makes a short study of the company's growth data. You can take a look at how Universal Health International Group Holding has developed its business over time by checking this visualization of its revenue and earnings history.
Can Universal Health International Group Holding Raise More Cash Easily?
Universal Health International Group Holding seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash to drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.